Your Audit Client Has a New Management Incentive Scheme in Place

Multiple Choice

Your audit client has a new management incentive scheme in place, with the bonus calculated on the basis of the increase in net profit over the previous year. The basis of the bonus will remain the same for the next three years. Your client has had a poor year and will not meet its budget or last year's net profit. Which of the following represents an inherent risk?

A) Insufficient provisions.
B) Next year's expenses taken up this year.
C) Next year's sales incorrectly taken up this year.
D) Overstatement of debtors.